Multiple Choice
Which of the following cash transactions is classified as a cash inflow from investing activities on the statement of cash flows?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
Which of the following statements regarding the statement of cash flows is FALSE?
A
Cash flows from operating activities include cash received from customers and cash paid to suppliers.
B
The statement of cash flows reports cash inflows and outflows from operating, investing, and financing activities.
C
The statement of cash flows is prepared using only the accrual basis of accounting.
D
Investing activities generally include the purchase and sale of long-term assets.
Verified step by step guidance1
Step 1: Understand the purpose of the statement of cash flows. It is a financial statement that provides information about cash inflows and outflows categorized into operating, investing, and financing activities.
Step 2: Review the definition of operating activities. These include cash transactions related to the core operations of the business, such as cash received from customers and cash paid to suppliers.
Step 3: Examine the definition of investing activities. These generally involve the purchase and sale of long-term assets, such as property, plant, and equipment, or investments.
Step 4: Analyze the statement regarding the accrual basis of accounting. The statement of cash flows is prepared using the cash basis of accounting, not the accrual basis, as it focuses on actual cash movements rather than accrued revenues or expenses.
Step 5: Identify the false statement. Based on the analysis, the statement 'The statement of cash flows is prepared using only the accrual basis of accounting' is false because the statement of cash flows uses the cash basis of accounting.
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